2014 (5) TMI 551 - HC - Income Tax

Difference between section 80HHC and 80HHE of the Act - Whether there is any material difference between Section 80HHC(3) and Section 80HHE(3) of the Act Held that - Section 80HHC is a provision intended to encourage export of any goods or merchandise except minerals and mineral oil the provision is general in nature - If there was no material difference between Sections 80HHC and 80HHE, there was no reason to legislate Section 80HHE because export of computer software in any event would have been covered by Section 80HHC there is no reason to treat them identically nor is it open to hold that there is no material difference between the language of 80HHC(3) and that of Section 80HHE(3) - There may not be any material difference between sub-Section 3 of each of the sections but they certainly operate in different fields Decided in favour of Assessee. Determination of admissible deduction u/s 80HHE(1) of the Act - Whether the turnover and profit or loss arising out of the business of gear box etc. is to be taken into account for the purpose of determining admissible deduction u/s 80HHE(1) of the Act Held that - The turnover of business which can be taken into account is only the turnover of the computer software or in respect of providing technical service as the case may be - Any reference to Section 80HHC for the purpose of understanding the mechanism of sub-Section (3) of Section 80HHE is likely to lead to wrong conclusion - The object of providing the mechanism in sub-Section 3 for the purpose of computing the profits was to provide adequate safeguard to prevent jugglery or manipulation of the books of account - in order to stop any such attempt, the legislature has provided for a special mechanism for the purpose of assessing the profits from out of which deductions can be claimed - Deductions were obviously provided for in order to generate foreign exchange - neither the turnover nor the profit nor loss arising out of the business activity relating to gear box had anything to do with the computation of the admissible deduction u/s 80HHE (3) of the Act Decided in favour of Assessee.

Summary

Issues:
1. Interpretation of Section 80HHC and Section 80HHE.
2. Inclusion of turnover and profit/loss from different business activities for deduction under Section 80HHE.

Analysis:
1. Interpretation of Section 80HHC and Section 80HHE:
The case involved a dispute regarding the interpretation of Section 80HHC and Section 80HHE. The Appellant argued that these sections operate in different fields and cannot be treated identically. The Court agreed with the Appellant, emphasizing that the provisions of Section 80HHE, specifically related to computer software business, were distinct from the general provisions of Section 80HHC, which encourage export of goods. The Court highlighted that the legislative intent behind enacting separate provisions for computer-related businesses indicated a specific focus, and thus, the sections should not be treated similarly. The judgment favored the Appellant's argument, concluding that there is a material difference between the two sections.

2. Inclusion of turnover and profit/loss from different business activities for deduction under Section 80HHE:
The second issue revolved around whether turnover and profit/loss from various business activities should be considered for determining the admissible deduction under Section 80HHE. The Court referred to the provisions of Section 80HHE, emphasizing that the turnover and profits to be taken into account are only those related to the specific business activities mentioned in the section, such as computer software export. The Court highlighted that the legislative intent behind providing a mechanism in Section 80HHE was to prevent manipulation of profits and ensure that deductions were claimed appropriately to promote foreign exchange generation. Therefore, the Court ruled in favor of the assessee, stating that turnover and profit/loss from unrelated business activities, such as gear box manufacturing, should not be considered for computing deductions under Section 80HHE.

In conclusion, the judgment clarified the distinct application of Section 80HHC and Section 80HHE, emphasizing the specific nature of the latter concerning computer-related businesses. It also underscored the importance of accurately determining turnover and profits for the purpose of claiming deductions under Section 80HHE, aiming to prevent misuse and promote the intended objective of encouraging foreign exchange earnings.